Abstract
This study empirically demonstrates significant regional peer effects due to tax avoidance. We used peer companies’ idiosyncratic stock returns as an instrumental variable to address potential endogeneity problems. The heterogeneity analysis indicates that for companies with a stronger intensity of regional tax collection and management, a higher degree of informatization, and companies with a low management shareholding ratio, the regional peer effects of enterprise tax avoidance are more significant. Finally, we determined that the managers’ information learning, reputation consideration, and information communication are key mechanisms propagating peer effects. The conclusions of this paper enrich and expand the peer effect theory of corporate tax avoidance, thereby providing a theoretical basis and empirical evidence for tax authorities in supervising corporate tax avoidance.
Highlights
Peer effects have received extensive attention in various fields including accounting, economics, and finance. Albuquerque (2009); Reppenhagen (2010), and Tse and Tucker (2010) found that managers’ disclosure decisions, accounting methods, and chief executive officers’ (CEOs’) relative performance assessments were subject to peer effects
The results indicate that obvious tax avoidance peer effects exist in listed companies in China, and peers significantly affect companies’ tax avoidance behavior
Columns (1)–(3) and columns (5)– (7) are the ordinary least squares (OLS) regression results with book-tax difference (BTD) and DR as the dependent variables when the firm, year, and region fixed effects are included
Summary
Peer effects have received extensive attention in various fields including accounting, economics, and finance. Albuquerque (2009); Reppenhagen (2010), and Tse and Tucker (2010) found that managers’ disclosure decisions, accounting methods, and chief executive officers’ (CEOs’) relative performance assessments were subject to peer effects. Others suggested that there are significant peer effects in a company’s investment behaviors, financing decision-making, illegal behaviors, and stock divisions (Leary and Roberts, 2014; Dougal et al, 2015; Kaustia and Rantala, 2015; Fracassi, 2017; Parsons et al, 2018). Lu et al (2017) found that the capital structure of Chinese enterprises is affected by the capital structure of their peers They found that the influence mechanism of peer effects mainly includes the managers’ reputation consideration. We investigate the role of peer effects in corporate tax avoidance
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